Tuesday, May 31, 2016

Trump and Hillary Are Both Terrible When It Comes to Economic Policy

By Justin Murray

Recently, Hillary Clinton was taped ridiculing Donald Trump for lacking a detailed plan for the American economy. The message, so it goes, is that Trump is not suited for the presidency because he doesn’t have a plan on how to turn the American economy around.

But is it really more dangerous to elect a president who makes up economic policy on the fly than one who proclaims to have a detailed plan for us?

The answer to this is no, it is not more dangerous to elect someone who makes up economic policy by the seat of his pants — as Donald Trump is prone to do — than it is to elect someone who thinks she can have the future of the economy neatly mapped out. However, this does not imply that seat-of-the-pants method is less dangerous either. The underlying problem is we have two competing people who think they can manage the American economy.

The core of why both philosophies are equally dangerous is best summarized by F.A. Hayek and the pretense of knowledge. Hayek notes in his speech in 1974:

Unlike the position that exists in the physical sciences, in economics and other disciplines that deal with essentially complex phenomena, the aspects of the events to be accounted for about which we can get quantitative data are necessarily limited and may not include the important ones … in the study of such complex phenomena as the market, which depend on the actions of many individuals, all the circumstances which will determine the outcome of a process … will hardly ever be fully known or measurable.

We are incapable of knowing what the future will bring. No president can come up with a detailed or air tight plan or can accumulate a sufficient stable of experts to be able to guide the behavior, wants, and needs of 320 million people.

For example, if we were to have asked George Bush and his economic experts in 2002 to develop a five year plan for cell phones, we would have built up a massive production capacity and R&D structure around miniaturizing phones as that was all the rage. If someone said in 2002 that people in the future would give up physical buttons and want larger screens, they would have been looked upon as mad. People are buying smaller and smaller phones, there’s no way they could touch the screen and get anything done! But come 2007, Apple introduces the iPhone and the older-style button phone has nearly vanished from the marketplace. Had the government decided it needed to plan the economy around smaller phones, we wouldn’t be enjoying a mobility revolution.

All behavior is risky. Even if central planners could somehow canvass all of our wants and needs, figured outwhen exactly we want to satisfy those needs, and determined who gets what in a world of scarcity, the planners would still fail. This is because even we have no idea what we’ll want in the future. If we were to ask someone to write down exactly what they would buy on August 14, 2017 and put it in an envelope then open it up and compare it to what was bought on that day, there is little doubt the results would be wildly different.

The planner is going to do no better. Instead of a single individual failing to predict his own habits in a fun exercise, we’ll be malinvesting untold amounts of money into unwanted industries and imposing counterproductive and dangerous rules on businesses — the effects of which are impossible to predict. Furthermore, central planning shuts down innovation and the entrepreneurial process because it assumes to know today what is wanted tomorrow. Most innovation arises when someone produces a product we had no idea we wanted and couldn’t fathom existing.

Does Hillary Clinton’s plan for the economy make her a more qualified president than Donald Trump, who will likely create plans spontaneously? No, it makes them equally dangerous as both assume they have the ability to do what countless officials over the centuries have never managed to do — predict the future.

2 comments:

By the author's own logic, they are not equally dangerous. The inflexible central planner's agenda stretches further into the future with proportionately more disastrous results.

Consider a planner who determines what to buy in 2016 from his perspective in the year 1916. He issues a standing order for typewriters and carrier pigeons and his country malinvests accordingly.

Contrast the planner who waits until 2015 to issue his production directives for 2016. He issues a standing order for iPhones and fiber optic cable. Malinvestments to be sure, but certainly less damaging to his serfs than the century planner's.

Clinton knows what she wants to give her chattel supporters, good and hard. Trump can't be pinned down, but is still concerned with his political survival, which means exploiting the golden goose and not killing it. Deferring decisions creates room for outcomes more palatable not only to him, but to his subjects, than those inherent in Clinton's advance auction of stolen goods.

In no way is this advocacy of Trump. But if we are betting men -- and of course we are, that is the essence of human action -- we need to discount the impacts of our future overlords as accurately as possible. Saying that they're equally horrible is simply abandoning the issue.